Another Great Reason to Retire in North Carolina - Retiree Tax Guide to NC by Kiplinger

The Tar Heel State is a favorite destination for retirees. Social Security benefits are exempt from state income taxes as are in-state public pensions and military pensions. Up to $4,000 of retirement income from federal, state and local government pensions can be excluded, too. Out-of-state government pensions also qualify for the $4,000 exemption. You can also exclude up to $2,000 of qualified private pensions, including IRA distributions, from state income taxes. State income-tax rates range from a low of 6% to a high of 7.75% (on taxable incomes of more than $120,000). North Carolina imposes a 5.75% sales tax. Counties can add their own sales taxes, and the combined rate can reach 8% or more in some jurisdictions. Prescription drugs are exempt; food is subject to a 2% county tax. Real estate and personal property is assessed at 100% of appraised value. Homeowners 65 and older may qualify for a homestead exemption of up to $25,000, subject to income eligibility, and a circuit breaker program that limits property taxes to 5% of income, subject to income-eligibility limits. There is no inheritance tax, and the estate tax is related to federal estate-tax collection.

STATE SALES TAX
5.75% -- but is due to return to 4.5% on July 1, 2011. Prescription drugs and medical equipment are exempt. Food is subject to a 2% county tax.

INCOME-TAX RANGE
6.0% – 7.75%

EXEMPTIONS FOR RETIREMENT INCOME
Social Security is exempt. At least $4,000 in exclusions for pensions from federal, state and local governments (depending on dates and length of service); an exemption of up to $2,000 for qualified private pensions, including IRAs. Out-of-state government pensions also qualify for the $4,000 exemption. State retirees with at least five years of creditable service as of August 12, 1989, will be permanently exempt from state income tax on their retired/retainer pay.

PROPERTY TAXES
All property, real and personal, is subject to taxation and is assessed based on 100% of appraised value. Taxes are collected by cities and counties. Under the homestead exemption, the greater of $25,000 or 50% of the appraised value of real property owned by a North Carolina resident and occupied by the owner as his or her permanent residence is excluded from the taxpayer's assessment if the following requirements are met: (1) The owner is 65 or older or is totally and permanently disabled. (2) The disposable income of the owner did not exceed $25,000 for calendar year 2008. The 2009 limit is $25,600. The income-eligibility limit is adjusted each year by the Social Security cost-of-living adjustment. The disposable-income limit amount includes all money received plus the disposable income of the applicant's spouse if they reside together. The state also has a "circuit breaker" property-tax-deferment program. Under this program, taxes for each year are limited to a percentage of the qualifying owner's income. The qualifying owner must be at least 65 years old or be totally and permanently disabled. For an owner whose income amount for the previous years does not exceed the income-eligibility limit for the current year, which for the 2009 tax year is $25,600, the owner's taxes will be limited to 4% of the owner's income. For an owner whose income exceeds the income-eligibility limit of $25,600 but does not exceed 150% of the income-eligibility limit (which is $38,400 for the 2009 tax year), taxes will be limited to 5% of the owner's income.

INHERITANCE AND ESTATE TAXES
There is no inheritance tax, and the estate tax is related to federal estate-tax collection.

State tax data courtesy Retirement Living Information Center. Visit RetirementLiving.com for a complete rundown of taxes in North Carolina.



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